The NZD/USD has been bullish in February. It seems like USD has been paring its gains across the board this month, and the kiwi was just another passenger along for the ride. Nonethless, NZD/USD made a bullish correction from 0.7176 to 0.7573.
A couple of key developments occurred this week.
1) Since last week, NZD/USD has been forming a head and shoulders pattern, and price action completed this topping pattern this week.
2) Price extended lower after the H&S top, and broke below February’s rising trendline.
Price is now flirting with a resistance from a previous consolidation earlier in the month, testing it as support. If price can climb back above 0.7450, let’s watch the 0.75-0.7525 area. This represents the lower part of the H&S pattern, and a bearish market should provide resistance here. Otherwise, we might want to anticipate further bullish correction.
Bearish Scenario: But let’s say price holds below 0.75 for the most part. After today’s price action, pressure will remain towards the 0.7324 and then the 0.7176 low on the year.
Bullish Scenario: Now, what if price does not extend lower, and instead climbs above 0.75 and then stays above it? Then, we have further bullish continuation, but we should limit this outlook against a prevailing downtrend that is still intact.
From the daily chart, we can see that above the current high, there could be resistance starting around 0.76 up to 0.77. This area represents the lows from a multi-month consolidation at the end of 2014. Also note that the 50-day SMA is around 0.76 and the 100-day SMA is around 0.77, reinforcing this former support area as a possible resistance during a downtrend.
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